Policy review: RBI Governor, Chidambaram go into huddle

Our Bureau Updated - March 12, 2018 at 04:55 PM.

A file photo of RBI Governor, D. Subbarao.

Days before the monetary policy review, Reserve Bank of India Governor D. Subbarao met Finance Minister P. Chidambaram here on Friday.

The policy review, scheduled to take place on July 30, could be the last one by Subbarao, unless he is given an extension after his five-year term ends on September 4.

It is customary for the Governor to meet the Finance Minister before a new policy or a review of the existing policy to discuss the macroeconomic situation.

However, Subbarao refused to comment on what transpired in today’s meeting. He also did not answer a question on whether the recent steps by RBI to tighten liquidity have had the desired impact.

Despite all expectations, the RBI is unlikely to cut policy rates.

The key policy rate, Repo Rate (the rate at which banks borrow from the RBI) is at 7.25 per cent, and any change is unlikely due to the sharp depreciation of the rupee.

The rupee fell to an all-time low of 61.21 to a dollar on July 8.

With a view to rescuing the rupee, in the past couple of weeks the central bank had raised the rates at which banks borrow short-term funds from RBI and had reduced their borrowing limits. Besides, it also took steps to discourage gold imports and encourage repatriation of funds by exporters.

Rattled by RBI’s initiatives, State Bank of India Chairman Pratip Chaudhuri has suggested that the central bank should not choke money supply and instead raise interest rates to check volatility in the forex market.

“Whenever the central bank needs to defend the currency or prevent inflation from going out of hand, please increase the interest rate, don’t choke liquidity,” he had said.

Prime Minister Manmohan Singh had also said that measures taken by the RBI were temporary and would be reversed once forex volatility subsided.

Similarly, FICCI President Naina Lal Kidwai had hoped that the rupee would stay stable because interest rates going up would be a “body blow to industry and industrial growth, which is very important, at a very fragile position right now.”

shishir.sinha@thehindu.co.in

Published on July 26, 2013 08:51